Utilities Enter Dog-eat-dog World

Geneva's new contract for electric service has generated some heat, and utility customers throughout the region can expect similar results as industry regulations continue to change.

For residents served by Geneva's power distribution system, the city's new contract with Wisconsin Electric Power Co. means an immediate 5 percent drop in electricity costs and the possibility of even larger savings later.

But the contract also means out-of-state users, who have made no financial investment in the company's power plants, will pay less for electricity than the Milwaukee-based utility's Wisconsin customers.

"It's certainly a very good contract for the city," said Phil Page, Geneva's city manager. "The fact that it's being protested in Wisconsin is the proof in the pudding, I guess."

The contract is also a sign of the future, as competition grows in a deregulated power industry. Local customers will see more out-of-state utilities competing with Commonwealth Edison Co. for contracts, said Allan Poole, director of public utilities for Naperville.

"Geneva represents potentially what Wisconsin wants to do," Poole said. "It's a dog-eat-dog world out there."

Geneva's 10-year contract, which went into effect Nov. 1, offers the city an average savings of 27 percent a year over the previous agreement with Wisconsin Electric, Page said. The arrangement also includes a $1 million grant for capital improvements to the city's electric system.

"We're going to be significantly lower (in rates) than ComEd or other municipalities, because we took a great deal of time in our negotiations," said James Greever, superintendent of Geneva's Electric Department. "The timing was everything, in my opinion."

Naperville also considered Wisconsin Electric, along with about eight other utilities, when that city recently reviewed its existing contract with Edison, Poole said. The city ended up extending its agreement with Edison through 2007, but it also negotiated a 7 percent rate decrease for the remaining five years of its current contract, which was due to expire in 1997.

"There were some good competitors out there but, in the end analysis, ComEd made us a good offer, and we took them up on it," Poole said.

The renegotiated contract also offers Naperville some new protections, including the option of leaving Edison after 2000, if the city finds a better deal elsewhere.

Comparison shopping for power rates is an option for those towns with municipally owned utilities that operate their own substations and electrical distribution systems. There are just 2,000 such municipal utilities nationwide and only 41 in Illinois, including Geneva, Naperville, Batavia and St. Charles.

The 1992 federal Energy Policy Act gave those towns the right to shop for the best wholesale electric prices. Other municipalities served by utility-owned substations are still captive to the rates set by the Illinois Commerce Commission for Edison, Illinois Power Co. or other big utilities.

Municipal utilities take the power they buy wholesale at high voltages, decrease the voltage in their own substations and distribute it to residents. Because they pay no taxes, don't operate for profit and keep local control, these towns can provide electricity at lower rates than utilities such as Edison, Poole said.

Wholesale buyers also have the advantage of "wheeling"--using local transmission lines to bring in electricity from outside providers--without paying high usage fees to the utility that owns those lines. The 1992 law prohibits utilities from using their control over local lines to charge anti-competitive wheeling fees.

"Competition is growing quickly in the wholesale market," said Martin Cohen, executive director of the Citizens Utility Board, a consumer watchdog group. "The fact that all these municipalities have lower rates than the rest of us shows that, when utilities are exposed to competition, it benefits us."

In Illinois, legislative plans for further deregulating the electric industry are being studied by the Joint Committee on Electric Utility Reform.

Edison, once insulated by regulation, has much to fear from competition because its heavy dependence on expensive nuclear power plants makes its rates among the highest in the nation.

Cohen said it's important to have a well-researched plan in place for deregulation, because there are "grave consequences if we do it wrong."

A successful program would benefit all consumers by allowing them to shop around for the best rates, he said. Meantime, he added, today's limited competition means there will continue to be winners and losers in the electric market, as the Wisconsin Electric deal illustrates.

"There's always a controversy when utilities sell off-system at the market price," Cohen said. When Edison sells power to municipalities or other utilities, for example, it may charge only one-tenth the rate it charges its retail customers, he said.

"The customers of another utility that didn't waste billions on nuclear plants will benefit," he said.

In the same way, Geneva consumers now are benefiting from investments made by Wisconsin Electric's customers across the state line. That's the reality of today's competitive market, Geneva's Greever said.

Edison has proposed a five-year rate freeze while deregulation takes effect. That freeze is intended, utility officials say, to defuse criticism that homeowners will have to foot the bill not only for the accumulated cost of building nuclear power plants but also for the discounts that Edison increasingly will have to give to stay in the competitive game. The commerce commission is considering Edison's suggestion as well as others for adapting to the new competitive world.